[Click eStock] "Concerns Over Japanese Stock Market Correction Ease... Positive Trend Continues"

Shinhan Investment Corp. stated on the 16th that, contrary to concerns at the end of last year about "yen appreciation pressure and stock market correction," Japan currently shows the strongest upward momentum among developed countries.

[Image source=AFP Yonhap News]

On the same day, researchers Kim Seonghwan and Oh Hanbi analyzed, "The positive trend in the Japanese stock market is expected to continue."

First, Researcher Kim said, "Initially, there were concerns that the Federal Reserve's (Fed) policy shift (interest rate cuts), the Bank of Japan's (BOJ) normalization moves, dollar weakness, and yen appreciation pressure could cause a temporary stalemate in the Japanese stock market. Given Japan's stock market situation, which still relies on exports, a reversal to yen strength seemed likely to cause earnings damage and volatility," adding, "However, the Japanese stock market has been hitting 52-week highs since the beginning of the year."

He cited 'three changes' as the reasons. First, the Noto Peninsula earthquake at the beginning of the year eliminated expectations for a BOJ base rate hike in the first half of the year. The initial rate hike timing was delayed to September, and since the start of this year, the yen has weakened more than other currencies.

Also, since March last year, individual investors have filled the gap left by foreign investors exiting the Japanese stock market. It is analyzed that the introduction of the new small-scale investment tax exemption system (NISA) influenced this.

Additionally, the Nasdaq (especially semiconductors) is strong. Currently, the Nikkei 225 is the index that most closely follows the Nasdaq's trajectory worldwide. Although the Japanese stock market was sluggish despite the Nasdaq's strength since November last year, semiconductor stocks, including Nvidia, have gained momentum in Japan due to new highs in U.S. semiconductor stocks at the beginning of the year.

Researcher Kim explained, "Given Japan's economy and corporate profit structure, which heavily rely on exports, a sudden reversal to yen strength could hinder economic recovery, and the BOJ is well aware of this. Since the second half of last year, the market has been weighing the end of easing policies and the timing of yen appreciation, but the BOJ behaves as if it cares more about the economy than inflation. It reaffirmed that it can remain patient until this spring's policy meeting."

He added, "These phenomena alleviate concerns about yen appreciation pressure and Japanese stock market correction. Earnings remain solid, and Japan shows the strongest upward momentum among developed countries," adding, "The medium- to long-term upward trend as a 'beneficiary of a strong U.S.' is still valid. We expect the positive trend to continue." He also noted, "In addition to tech and semiconductors linked to Nasdaq strength, sectors leading earnings improvement will drive the Japanese market going forward. These include finance, consumer discretionary, and real estate."